Chembio Diagnostics, Inc.
Q4 2015 Earnings Call Transcript

Published: 10 Mar 2016

[Operator:]

Greetings and welcome to the Chembio Diagnostics 2015 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. John Sperzel, Chief Executive Officer. Thank you, Mr. Sperzel, you may begin.

[John Sperzel:]

Hello and thank you all for participating in today’s call. Joining me today is Rich Larkin, our Chief Financial Officer. Before we begin, I’d like to caution that comments made during this conference call today, March 8, 2016, will contain forward-looking statements within the meaning of the Securities Act of 1933 concerning the current beliefs of the company, which involve a number of assumptions, risks and uncertainties. Although results could differ from these statements and the company undertakes no obligation to revise or update any statement made today. I encourage you to review all the company’s filings with the Securities and Exchange Commission concerning these and other matters. During 2015, Chembio took important strategic steps to expand our patented DPP technology to new markets and the company has reached the pivot point. While the company continues to strengthen its sexually-transmitted disease business, we are building robust pipelines in two new areas, fever disease and technology collaborations. And we have been very successful in executing our strategy to obtain grant-based or partner-based funding for these new initiatives. While our sexually-transmitted disease products like DPP HIV syphilis, DPP HIV, STAT-PAK HIV and SURE CHECK HIV are expected to provide important ongoing contributions. We believe our new fever disease assays and technology collaborations will pave the way for future growth. In fact yesterday, we announced plans to collaborate with Bio-Manguinhos/Fiocruz to develop, register, and commercialize DPP Zika and DPP Zika, Dengue, Chikungunya assays for Brazil. And having recently returned from Brazil, where we had direct discussions with the Ministry of Health and ANVISA, Brazil’s equivalent to the FDA, we anticipate receiving significant orders for DPP Zika assays in 2016. I will provide a more detailed overview of our recent and anticipated milestones, following the review of the full year financial results. However, before turning over the call to Rich, I would like to comment on Chembio’s filings this morning. In addition to our 10-K, we made filings to renew our shareholder rights agreement, as well as our shelf registration. Our shareholder rights agreement expired at the end of November 2015 and our shelf registration expired in January 2016. As a standard corporate policy, Chembio management takes steps to keep all such agreements and tools current. And our filings today should not be interpreted to signify anything other than prudent business practice. With that, I will turn the call over to Rich.

[Rich Larkin:]

Thanks, John. In conjunction with my comments, I would like to recommend that participants review Chembio’s 10-Q filing for additional details. Our total revenues for the full year of 2015 of $24.26 million were down 12.3% compared with total revenues of $27.65 million in the prior year period. Product sales for the 2015 full year of $21.89 million were down 15.7% compared with product sales of $25.95 million for 2014. Research and development milestone and grant and royalty revenues for the full year 2015 increased to $2.37 million from $1.7 million in 2014. Our gross margin dollars for the full year 2015 decreased 3.0% to $10.49 million compared with $10.81 million for 2014 due primarily to the decrease in product revenues. The amount of gross – the amount of product gross margin dollars for the full year of 2015 decreased 11% to $8.12 million from $9.12 million in 2014. Research and development expenses in the full year of 2015 were $6.38 million compared with $4.83 million in 2014. This increase is due primarily to increased R&D activities for projects and grants. Some projects on a milestone basis for which revenue cannot be recognized until the milestone is achieved, while expenses to reach that milestone are expensed in the period incurred. Selling, general and administrative expenses in the full year of 2015 increased to $7.66 million from $7.53 million in 2014 largely due to increased staffing, wages and related costs, increased travel related to our commercialization efforts and professional fees. The operating loss for the full year of 2015 was $3.55 million compared with an operating loss of $1.55 million for 2014. Net loss for the full year of 2015 was $2.4 million or $0.25 per diluted share compared with a net loss of $1.14 million or $0.12 per diluted share for 2014. The company had cash and cash equivalents of $5.38 million as of December 31, 2015 compared with $4.61 million as of December 31, 2014. The increase was primarily due to net cash provided by operations of $1.79 million partially offset by investing activities to fund the purchase of a license and deposits on and purchase of fixed assets of $1.03 million. Our working capital decreased by $3.22 million during the year from $12.37 million to $9.15 million. That concludes the financial review. And I will turn the call back over to John.

[John Sperzel:]

Thanks, Rich. I would now like to give an overview of the progress made in each of our business areas during 2015. I will first speak about sexually transmitted disease business. In the United States, we achieved an increase in lateral flow HIV sales in 2015 of approximately $440,000. STAT-PAK HIV sales in the United States increased nearly 30% between Q3 and Q4 of 2015 after recording 20% growth between Q2 and Q3 of 2015 and 20% growth between Q1 and Q2 of 2015. So, we are making progress after gaining full control of the STAT-PAK HIV assay in the U.S. market in 2014 following the termination of a prior U.S. distribution agreement. During 2015, the company also took steps to gain full control of its SURE CHECK HIV assay. In January 2015, we announced the acquisition of global rights to the SURE CHECK HIV assay effective June 1, 2016. And we recently announced the termination of the SURE CHECK U.S. distribution agreement with Alere leader effective May 31, 2016. Accordingly, effective June 1, 2016, we will begin selling the SURE CHECK HIV assay in the United States market through our existing U.S. sales force and distribution channels. We are optimistic about the increasing demand for our U.S. HIV products as well as the addition of our SURE CHECK HIV assay effective June 1, 2016 through our commercial efforts. We look forward to expanding our U.S. customer base and strengthening relationships within our existing distribution channels. In Latin America, we experienced a $3.5 million decrease in sales of the DPP HIV-Syphilis assay in Mexico, related to excess inventory from 2014 and a $2.1 million decrease in sales of DPP HIV assays in Brazil. We are currently competing for several tenders in Mexico. And while there are no guarantees, we are optimistic. In Europe, Chembio’s partners, AAZ and BioSure launched sales of Chembio SURE CHECK self-testing kits in the UK and France respectively. The launch of these private label self-testing kits in Europe was a great success, with sales of approximately $1 million in 2015. HIV continues to pose a significant threat in Europe and European health agencies are promoting the importance of testing for HIV. We believe our SURE CHECK HIV product is particularly well-suited for the emerging European self-testing segment, given its ability to provide simple, fast and reliable detection of antibodies to HIV 1 and HIV 2. Another very important advancement in our sexually-transmitted disease business during 2015 is the progress made with our DPP HIV-Syphilis assay for the U.S. market. It is a corporate priority to be first to market in the United States with DPP HIV-Syphilis combination test. While the company is already marketing the DPP HIV-Syphilis combo assay in Latin America, regulatory standards require additional enhancements for the U.S. market and the completion of clinical trial. We promised to initiate the U.S. clinical trial in the first quarter of 2016 and I am pleased to inform you that we will deliver on that promise. As previously mentioned, the clinical trial will be completed in six months to nine months at a cost between $1 million and $1.5 million. Shifting gears now to our fever disease business, our fever disease business was initiated in Q4 of 2014 in response to the Ebola outbreak in West Africa and expanded rapidly throughout 2015. We are collaborating with several of the world’s leading organizations with the goal of containing the spread of fever diseases through accurate and early diagnosis. Today, our fever disease product development includes a number of highly differentiated point-of-care products, all of which are being developed through grant based or partner based funding, including the following; The DPP fever panel assay, a test for the simultaneous detection of malaria, dengue, chikungunya, Zika, Ebola, Lassa, and Marburg which is funded by the Paul G. Allen Foundation, The DPP Malaria Ebola and DPP Ebola assays, which have been developed through a research collaboration agreement with the centers for disease control and prevention and are currently being tested in West Africa, The DPP dengue fever assays, which are funded by undisclosed partner and are currently being field tested in Asia, The DPP Malaria assays for which feasibility was funded by the Gates Foundation and is proven to be 10x more sensitive than the world’s leading point-of-care malaria test And last, the recently announced DPP Zika assays, which have received additional funding from the Paul G. Allen Foundation. While we are excited about each of these new products, the DPP fever panel and the DPP Zika, dengue, chikungunya assays in particular highlight the power and versatility of our DPP technology and we believe both of these products to be truly groundbreaking. Our DPP fever panel assay will be the first simple, cost effective, point-of-care diagnostic test, capable of simultaneously detecting such a broad range of fever diseases. We believe this product will significantly improve the diagnosis and care for people in regions where there is regular exposure to multiple fever diseases. As you know, many of these diseases present in the same regions with nearly identical symptoms, which create difficulty in making an accurate diagnosis. The sensitivity, specificity and multiplexing capability of the DPP technology uniquely suits it for the fever disease market by providing the ability to discriminate between the viruses and to identify co-infected patients, which is a growing health concern. Development of our new DPP Zika assays also showcase the wide range of utility of our DPP technology. In February, the World Health Organization declared the Zika virus a “public health emergency of international concern”. And today, the virus has spread to more than 20 countries. In response to the outbreak, we began exploring the feasibility of a point-of-care DPP Zika assay. We are fortunate that the Paul G. Allen Family Foundation recognizing the urgency of the matter moved swiftly to provide Chembio with a grant to support the initiation of the product. And we thank Paul and his team for the leadership and the confidence in Chembio’s technology and scientific expertise. We are pleased to report that we have developed prototype DPP Zika and DPP Zika, dengue, chikungunya assays initiated testing of clinical specimens from a number of affected countries and the data is highly encouraging. Further, I can report that we were in discussions with a number of potential funding organizations and we hope to receive additional funding to accelerate the development, testing and regulatory approval of these important assays. Lastly, I would like to address our technology collaborations. Chembio’s technology collaborations represent another important business area for the company. In the fourth quarter of 2014, we signed collaboration agreements for the development of the DPP cancer assay and the DPP flu immunostatus assay. In 2015, we added new collaborations for the development of the DPP traumatic brain injury assay and the DPP Micro Reader. We are pleased with the progress made in each of these programs in 2015. The DPP cancer assay, which is funded by an undisclosed partner, targets a specific form of cancer. During 2015, we successfully completed the feasibility phase of the program, demonstrating the ability to detect a specific form of cancer using the DPP technology and we moved into the product development stage, which is also funded by the same undisclosed partner. The results to-date with this program are highly encouraging and with the success we are hopeful that we will be able to find additional applications for our DPP technology in the broader oncology market. We also made important advances with our DPP traumatic brain injury assay program during the year. This project, which is funded by Perseus Science Group is in the feasibility phase. We are currently working with several hospitals to finalize institutional review board agreements and develop the plan for conducting initial studies of the DPP traumatic brain injury assay using patient specimens. Our DPP flu immunostatus assay is a multiplex assay designed to monitor nine different seasonal and pandemic flu viruses. To-date, all development phases have been funded by the U.S. government and we are currently awaiting the response on the most recent multi-year grant proposal for completion of this project. And while we are optimistic, there are no guarantees. Our newest technology collaboration was signed in the fourth quarter of 2015 with opTricon, a leading developer of mobile analysis devices for rapid diagnostic tests. Through our exclusive agreement, Chembio will launch the DPP Micro Reader to compliment a number of our proprietary DPP assays for sexually transmitted diseases, certain fever diseases and a specific form of cancer. Using a state-of-the-art camera system, the DPP Micro Reader is designed to provide definitive diagnostic results for low analyte concentrations, which may otherwise result in faint or ambiguous test results. In addition, the DPP Micro Reader will provide customers with various options to capture, record, transmit and store test results. Because the DPP Micro Reader is simple, fast, palm-sized, battery-operated and cost effective compared to traditional point-of-care assay readers, it is unique in its attractiveness and utility and we believe it will be well received by the market. Lastly, I want to update you on our partnership with RVR in Malaysia, which includes license, technology transfer, manufacturing and distribution. The facility in Malaysia has received ISO certification and is fully operational. Today RVR is producing DPP HIV assays under the RVR brand and we anticipate the production of additional products under both RVR and Chembio brands in 2016. In closing, 2015 was a transformative time for Chembio and we have reached the pivot point. During the year, we significantly expanded the horizon for the utility of our DPP technology. This led to new and exciting applications beyond sexually transmitted diseases to fever disease, brain injury, a specific type of cancer and more. And in that short amount of time, we gained the attention of and funding from world leading organizations, such as the Gates Foundation, the Paul G. Allen Family Foundation, the Centers for Disease Control and Prevention and Perseus Science who met all selected Chembio and the DPP technology to address some of the world’s most significant diagnostic opportunities. The events and opportunities of 2015 have considerably changed Chembio by significantly expanding the potential application end markets for our DPP technology. For many diseases, infections or conditions that require exceptional sensitivity, specificity and the ability to multiplex, we believe our patented DPP technology they become the platform of choice. Looking ahead to 2016, we will continue to advance each of our development programs towards commercialization and simultaneously seek new opportunities and applications. This concludes our prepared remarks for today. I would now like to open the call for questions and answers.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Bill Bonello with Craig-Hallum. Please proceed with your question.

[Bill Bonello:]

Hey, good morning guys. I think from the – for the development activity that kind of stuff going on, wondering….

[John Sperzel:]

Good morning, Bill.

[Bill Bonello:]

Good morning. I am wondering if you can give us any color on timing for commercialization for any of these fever products or the other products for that matter?

[John Sperzel:]

Bill, I probably wouldn’t want to go into specific details on commercialization, product by product. What I would say is that in 2016, we expect to generate revenue from the portfolio in general. I mentioned some comments about the expectation of receiving orders for our DPP Zika assays in 2016, so I would probably limit the conversation to that.

[Bill Bonello:]

Okay. So, your revenues would go beyond Zika in ‘16 then?

[John Sperzel:]

Not at this point.

[Bill Bonello:]

Okay. And then….

[John Sperzel:]

Bill, keep in mind, when we talk about Zika we are talking about three different products. So, one is a standalone DPP Zika assay, the second is a multiplex assay that would simultaneously detect Zika, Dengue and Chikungunya, IGG and IGM antibodies and the third is full fever panel, which now will include Zika.

[Bill Bonello:]

Okay, okay. That’s helpful. And you are not necessarily saying that you would be generating revenue from all three of those products in the year?

[John Sperzel:]

Not necessarily. That’s going to depend upon regulatory approvals.

[Bill Bonello:]

Okay. And then just a second question and I will hop back in the queue. Can you give a little bit more color on what drove – you were clear about the declines in Mexico, but maybe what drove the declines in Brazil if it was kind of all related to the technology transfer agreement with Fiocruz and then sort of more importantly, what your outlook for revenue in Mexico and Brazil is from this point forward?

[John Sperzel:]

Sure. I will take them one at a time. So first in Mexico, as stated in the prepared remarks, there was excess inventory of the DPP HIV-Syphilis assay in Mexico from an order that was placed in 2014 and that basically carried the product through 2015. Going into 2016, we don’t see that kind of inventory. As I said, we are participating in a number of different vendors, while there are no guarantees that we will be successful in those. We are optimistic about our participation. As far as Brazil is concerned, the decline in a standalone HIV assay sales in Brazil was related to one competitor who won a tender at $0.40 per test, BRL1.5. We decided not to compete for that business for obvious reasons.

[Bill Bonello:]

Okay. And so would we think of that as just gone?

[John Sperzel:]

We would think of that piece of business as gone for 2016. However, we anticipate significant orders related to DPP Zika assays. And as you know, Brazil is the epicenter of the current outbreak. So, you could imagine that we would experience sales of Zika-related assays in Brazil in 2016.

[Bill Bonello:]

Okay, great. I will hop back in the queue. Thank you.

[John Sperzel:]

Sure. Thank you, Bill.

[Operator:]

Our next question comes from the line of Brian Marckx with Zacks Investment Research. Please proceed with your question.

[Brian Marckx:]

Good morning, guys and congratulations on the progress on the fever side.

[John Sperzel:]

Good morning, Brian.

[Brian Marckx:]

John, you have done – it looks like you are – it looks like a real good job with lateral flow in the U.S. despite the earlier agreement rolling off with STAT-PAK. And so with SURE CHECK coming up that agreement rolling off around midyear this year, can you talk about what you think in terms of – is that – should we look that as an opportunity or should we look at that as a potential – a potential headwind, I guess?

[John Sperzel:]

So, let’s think about STAT-PAK and SURE CHECK and how they are similar and how they are different in this transition. So obviously, we are talking about the same distribution partner in terms of similarities, we are talking about the same HIV market segment in terms of similarities. Then there are many differences. If we go back to 2014, the obstacles that we had in front of us in that transition were first of all when we notify our former partner there was a 60-day wait period before we could speak to a single customer. That means we couldn’t speak to customers, we could not also speak to potential distribution partners like McKesson/PSS, Fisher, Schein, Medline and others. And so that gave that former partner time to go out and create confusion in the market, markup customers, etcetera and they did. And we have worked very hard to undo that. So, what is different with SURE CHECK? First of all, the form factor is very different, the product is different. And so customers love SURE CHECK, they love the very small sample size. They love the fact that it’s unitized. It’s a much different conversion if our former decision partner were try to convert and by the way they have been for 2 years unsuccessfully. So, that’s different. We also already have a sales force now. We already have distribution partners. So, in essence, effective June 1, we will begin to plug that product into our existing sales team and our existing distribution partners and we don’t have any wait period from the day of termination. So, the agreement ends on May 31, we will start on June 1.

[Brian Marckx:]

Okay. So, is it fair to say that you think that the lateral flow sales on the U.S. could actually grow in 2016?

[John Sperzel:]

I don’t think that I want to comment on that, Brian. I think what we could anticipate is that our distribution partner has some inventory. And as we saw in STAT-PAK they will try to continue to supply customers with the product that they have. We on the other hand will try to get those customers to buy from us.

[Brian Marckx:]

Okay. And if I could just one more relative to the DPP reader, can you talk about what prompted you to go develop a reader and was there any, I guess, kind of headwind in the U.S. with the DPP HIV without the reader?

[John Sperzel:]

So, I will take the second part first. There was no headwind whatsoever without the reader for DPP HIV-Syphilis assay. We believe that a small, cost-effective portable reader can be a significant differentiator in the, I will just call it “lateral flow segment.” As you know, most of these products are read visually. A visual interpretation of a lateral flow test can cause transformation errors, can cause user interpretation variability, and we think that a reader will give better consistency, will minimize transcription errors, and in particular, when you talk about multiplex assays, where you are measuring 2, 3, 4, 5, 6, 9 assays, our reader is just an absolute requirement. And so, we have worked very hard to identify a company that could develop and deliver a reader that’s cost effective, it’s simple, it’s portable, it’s battery-operated. And again, the most important piece that I want to underscore because of where we are selling many of these assays had to be cost-effective and we found that in opTricon and we are happy to have that product exclusively for the STD segment, for the fever disease segment and to apply it to our cancer assay as well. So, we are making what is otherwise a qualitative test into a semi-quantitative or in some cases quantitative assay.

[Brian Marckx:]

Okay, great. Thanks, John.

[John Sperzel:]

You are welcome. Thank you.

[Operator:]

Our next question comes from the line of Raymond Myers with The Benchmark Company. Please proceed with your question.

[Raymond Myers:]

Thanks. John, could you describe how the African and Asian field testing of Ebola and dengue relates to the commercialization and ultimately the sales of those tests?

[John Sperzel:]

Good morning, Ray. Sure, I am happy to. As I mentioned, the development of the DPP malaria-Ebola combination assay and the DPP Ebola assays were done in a research collaboration agreement with the CDC. So, there was a lot of cooperation in terms of development of that assay, the testing in CDC’s high containment BSL4 laboratories and that collaboration continues today where both of those assays, as we mentioned in the last earnings call, we sold over $1 million worth of DPP Malaria Ebola and DPP Ebola assays to CDC. CDC has both of those assays and they are testing them in the West Africa. Think of that as a clinical trial led by and funded by the CDC. When we get the results of those tests, we will move towards the commercialization effort, but I can’t suggest the timing of that at this point.

[Raymond Myers:]

Do you know when those tests will be complete?

[John Sperzel:]

It’s not something that I would like to disclose at this point.

[Raymond Myers:]

Okay. And then, kind of two related financial questions. What I am trying to get out ultimately is some understanding of when revenues would return to more recent historical levels after Q4 and also you mentioned that Chembio expects significant highlights – significant 2016, Zika sales, can you provide some more color on what you mean by significant and the possible timing so that we can help us to model 2016?

[John Sperzel:]

Well, I can’t define what significant means, I think it’s important to just think about what was disclosed in the press release yesterday in the collaboration with Bio-Manguinhos/Fiocruz. Well, first it’s important to understand that healthcare is a constitutional right in Brazil and the government provides healthcare to the majority of Brazil’s nearly 2 million people. It’s also important to understand that Bio-Manguinhos/Fiocruz is the arm of the government that’s responsible for vaccines, diagnostics and biopharmaceuticals and primarily to meet the demands of Brazil’s national public healthcare system. And over the last 12 years, Chembio and Bio-Manguinhos have collaborated on number of point-of-care diagnostic tests including HIV, Syphilis and Leishmania, all of which are commercialized in Brazil today. So those collaborations with Bio-Manguinhos/Fiocruz have one primary objective to bring technology and innovation to the people of Brazil. So our DPP Zika collaboration have the same goal to bring certain DPP Zika assays to the people of Brazil. And as I stated, we expect significant orders for DPP Zika assays in 2016. Now Brazil is just one of the more than 20 countries that have local transmission of the Zika virus and the experts believe that Zika has the potential to take the same global path as dengue fever. And we know that 100 million cases of dengue anyway. So this is a serious health concern and I think if you want to define significant, I would just underscore the word significant without putting specific number to it. There are many countries that we expect to sell and market a DPP Zika or DPP Zika combo assay in 2016, not just Brazil.

[Raymond Myers:]

That’s very fantastic. And then maybe finally, there is a lot of research and development that’s been going on at Chembio and now you have made very rapid progress with the Zika opportunity, does Chembio still have the resources to be so much research scheduled, in particular competing – completing what is now a seven test panel by the – what was originally targeted at the end of this year, is that still on target?

[John Sperzel:]

Absolutely, it’s on target. I think just a couple of comments about that. First of all, we are a technology company. We have approximately 150 people in the company and more than 30 are our scientists in research and development. So we are heavily slanted to our technology development. We have been very successful executing our strategy to obtain grant based or partner based funding for our projects. And as I mentioned, we have partners like the Gates Foundation for malaria, Paul G. Allen for the fever panel and now Paul G. Allen came back for a second grant for Zika foresee a science for brain injury and related – and sports related concussion. Undisclosed partners for cancer and dengue fever. And we have ongoing dialogue with a number of future partners and Zika is a very good example. Keep in mind the process we are receiving funding form these organizations is very sophisticated and we are developing a very good track record. The reason is because we are making commitments and we are delivering on our promises. We have one internally funded project and that is the DPP HIV-Syphilis assay for the U.S. market and as I said we will initiate the clinical trial in Q1. So all of those 30-plus people the margin or the revenue that’s generated from those products there are absolutely requirements for the way we manage the projects and the way we communicate our progress to those organizations.

[Raymond Myers:]

It sounds great. Thanks John.

[John Sperzel:]

You are welcome. Thank you, Ray.

[Operator:]

Our next question comes from the line of Harris Shapiro with TFST Publishing. Please proceed with your question.

[Harris Shapiro:]

Good morning John.

[John Sperzel:]

Good morning Harris.

[Harris Shapiro:]

I didn’t hear any mention of India, at the current time or in the balance of the year, is there any initiatives of getting business in India?

[John Sperzel:]

It’s not a priority for us at the moment, that’s not to say that that would not change as we move through 2016.

[Harris Shapiro:]

Okay. And just one more question, I am really don’t – not familiar with the testing processes and approvals of tests, once you are able to sell in Brazil, does that open up many other countries or do you have to go through a separate procedure, let’s say in the United States to get FDA approval or not?

[John Sperzel:]

So the short answer to your question is it depends on the country. In Brazil, the FDA equivalent is called ANVISA and receiving ANVISA approval would allow us to market and Brazil and Brazil alone. To market and sell a product in the United States we will be discussing those with the Food and Drug Administration. In Mexico it’s different, in Asia it’s different. So there are approvals that you get for example, WHO prequalification, that might give us broader commercial, potential, but in general, it’s the country-by-country initiative.

[Harris Shapiro:]

Thank you very much.

[John Sperzel:]

You are welcome. Thanks Harris.

[Operator:]

[Operator Instructions] Our next question comes from the line of Bill Bonello with Craig-Hallum. Please proceed with your question.

[Bill Bonello:]

Hi guys. Thanks for taking a couple of more questions.

[John Sperzel:]

Of course Bill.

[Bill Bonello:]

I don’t think you said this in the answer to the last question, if you did, I apologize it, but I apologize for asking, the DPP HIV Syphilis for the U.S. market, is that – can you remind is that a PMA or is that a 510(k)?

[John Sperzel:]

So technically it’s a PMA, because any assay that includes HIV would fall under the PMA guidelines. However, we follow protocol in this application that will look and cost very much like a 510(k). And the reason is, if I would try to state it simply, we are not touching the performance of the HIV assay. Now that makes it much more difficult for the folks in R&D, because if we allow them to optimize HIV and Syphilis together they could develop the test quicker. The challenge with that would be that we would have a DPP HIV assay out in the market that performs one way and potentially a DPP HIV-Syphilis assay if the 510(k) tougher on the cost, but that’s their job.

[Bill Bonello:]

Okay, that’s helpful. And then just on the Zika, has Paul Allen funded a number of organizations to develop Zika assays and maybe more broadly are you aware of other organizations funding development of Zika tests?

[John Sperzel:]

So, I will take the second part first. We are talking to many organizations that are interested in funding a rapid Zika diagnostic test, in particular one that can discriminate between the viruses, because there was proximity activity between dengue and Zika for example. And also one that can identify core infected patients, which as I said in the prepared remarks is a growing global concern, because the virus is transmitted by the same mosquito. So, as I said before, where there is dengue, there is likely to be chikungunya and Zika as well. So there is a growing interest in our technology, because it allows the ability to discriminate and to identify co-infected patients. And as far as Paul Allen is concerned in the funding, Paul Allen Family Foundation announced funding related to Zika to two companies Chembio and the Red Cross and that’s all that I am aware of.

[Bill Bonello:]

Okay, great. Thank you.

[John Sperzel:]

Thank you, Bill.

[Operator:]

Our next question comes from the line of Paul Nouri with Noble Equity Funds. Please proceed with your question.

[Paul Nouri:]

Hey, good morning.

[John Sperzel:]

Good morning, Paul.

[Paul Nouri:]

How far along are you with the hepatitis C test?

[John Sperzel:]

We are not developing hepatitis C test. We completed fee of that product. The license fee to develop point-of-care hepatitis C product is enormous. And in my opinion, while there is one company that has a monopoly in point-of-care hepatitis C testing, I am not sure that, that market is developing anywhere near expectations. So, it would not be a good use of Chembio’s capital.

[Paul Nouri:]

Okay. So, you are only going to move forward with it if you can get a partner for it?

[John Sperzel:]

That’s correct.

[Paul Nouri:]

Okay. Yes, those are my all questions. Thank you.

[John Sperzel:]

Okay. Thank you, Paul.

[Operator:]

Our next question comes from the line of Larry Haimovitch with HMTC. Please proceed with your questions.

[Larry Haimovitch:]

Good morning, John.

[John Sperzel:]

Good morning, Larry Haimovitch.

[Larry Haimovitch:]

Yes, thank you. I have a couple of questions. Question number one, can you provide anymore color on the oncology efforts, I am intrigued with what you are doing, it sounds like you made some significant progress during 2015 and I would like to hear a little more color on this if you could provide?

[John Sperzel:]

Sure. There are limitations to what I can say because of the agreement what we have with this partner. But beyond what I said in the prepared remarks, what I can say is that we have successfully completed feasibility. That means that using a finger stick drop of blood and applying that to our DPP platform, which has their biomarkers embedded in it, we can identify this particular form of cancer in 15 or 20 minutes. And it’s a quantifiable result because we are using the DPP Micro Reader. So, it’s very exciting. The data looks promising enough that the partner agreed to fully fund the product development initiatives. So unfortunately, that’s about all I can say, Larry. I can’t identify the partner and I can’t identify the specific form of cancer for competitive reasons.

[Larry Haimovitch:]

Okay, great. And then broad or brush question, I know you are coming up on your 2-year anniversary at Chembio, can you reflect a little bit on what you think are the – your biggest one or two or three accomplishments, so lot has been accomplished clearly listening to the call this morning, there are so many initiatives going on. It’s really remarkable for a company of your size. I am curious when you take a step back and look at the bigger picture, what you feel particularly good about is you reflect on coming up on your 2-year anniversary?

[John Sperzel:]

Well, I maybe just make a comment before I dive into that. In my opinion 25, 30 years in the point-of-care diagnostic space, I think that success is generally driven by two very important components one is, technology the extent that it’s proprietary the better. And the second is distribution channels. So, if I couldn’t dive a little deeper, we have something that is very unique in the DPP technology. We believe that and I believed it when I joined the company 2 years ago. And what we really needed to do was start to put some legs under it, because effectively what we had in 2014 was a very unique proprietary platform technology that we had made in HIV test gone. And we had gone a little down the path to make a multiplex for HIV-Syphilis. And we forged a different path in the last 2 years to really put legs under this technology platform and find a way to finance that, which I think is unique and creative as well in this partner days or grant-based funding approach. So, I feel very good about the fact that we put legs under the DPP platform technology in this huge emerging market segment of fever and tropical diseases. And that we have also established a number of technology collaborations around dramatic brain injury and sports related concussion, cancer and others. So, from a technology standpoint, we feel very good about the progress that we have made. I also feel good about the distribution channels that we are beginning to develop. We took old strategic decision in 2014 and separated from a long-term partner in HIV and as we said in the prepared remarks, we are beginning to build that business, build that market and with that capability of results. It takes a long time to build global deception general and that’s something we are looking at hard at in terms of the best way to accelerate those efforts, but that is absolutely our intention to make sure that we have solid proprietary technology that has a great future and to make sure that we simultaneously developed strong global dissolution channels and I feel good about our progress in both of those areas.

[Larry Haimovitch:]

Good. Thanks, John. Great.

[John Sperzel:]

Thank you, Larry.

[Operator:]

There are no further questions at this time. I would like to turn the floor back over to John Sperzel for closing comments.

[John Sperzel:]

Thank you, Michelle and thank you all again for your participation and continued support of Chembio Diagnostics. We look forward to updating you again next quarter. Have a great day.

[Operator:]

This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.